Airfreight Exp. Ltd. v. Evergreen Air Center

• Decision Date: 21 May 2007
• Docket Number: No. 2 CA-CV 2006-0149.,2 CA-CV 2006-0149.
• Citation: 158 P.3d 232,215 Ariz. 103
• Parties: AIRFREIGHT EXPRESS LTD., a United Kingdom corporation, Plaintiff/Appellant, v. EVERGREEN AIR CENTER, INC., an Oregon corporation, Defendant/Appellee.
• Court: Arizona Court of Appeals

158 P.3d 232

215 Ariz. 103

AIRFREIGHT EXPRESS LTD., a United Kingdom corporation, Plaintiff/Appellant, v. EVERGREEN AIR CENTER, INC., an Oregon corporation, Defendant/Appellee.

No. 2 CA-CV 2006-0149.

Court of Appeals of Arizona, Division 2, Department B.

May 21, 2007.

Fennemore Craig, P.C., By James J. Trimble and David A. Weatherwax, Phoenix, Attorneys for Plaintiff/Appellant.

Law Offices of Joel L. Herz, By Joel L. Herz and Russell B. Stowers, Tucson, Attorneys for Defendant/Appellee.

OPINION

BRAMMER, Judge.

¶ 1 Appellant Airfreight Express, Ltd. ("AFX") appeals from the trial court's grant of appellee Evergreen Air Center, Inc.'s ("Evergreen") motion to dismiss and motion for summary judgment in AFX's action arising out of AFX's contracts with Evergreen for maintenance and repair of AFX's Boeing 747 aircraft. AFX asserts on appeal that the doctrines of claim and issue preclusion do not bar its claims and that summary judgment was improper. We reverse.

Factual and Procedural Background

¶ 2 "When a motion to dismiss for failure to state a claim is granted, review on appeal necessarily assumes the truth of facts alleged in the complaint." Logan v. Forever Living Products Int'l, Inc., 203 Ariz. 191, ¶ 2, 52 P.3d 760, 761 (2002). On appeal from a summary judgment, we view the evidence and all reasonable inferences therefrom in the light most favorable to the party against whom summary judgment was granted. Walk v. Ring, 202 Ariz. 310, ¶ 3, 44 P.3d 990, 992 (2002).

¶ 3 In November 2000, AFX contracted with Evergreen for maintenance and repairs to its Boeing 747 aircraft so that AFX could perform an air cargo contract it had with Air France. AFX was to pay Evergreen to perform the repairs on a time and materials basis. Disputes arose between the parties concerning delays in making repairs and the amount of Evergreen's charges. In an attempt to complete the repairs and avoid litigation, the parties, in February 2001, entered a settlement agreement.

¶ 4 That agreement contained a clause releasing Evergreen from "any and all ... [c]laims ... which could arise out of or derive from" the maintenance agreement, "except for the obligations of Evergreen set forth in this Settlement Agreement." It also stated, "[e]xcept as specifically set forth herein, none of the terms of the [maintenance agreement is] being modified and [that agreement] shall remain in full force and effect." The settlement agreement required AFX to make three payments to Evergreen, one on February 23, a second on February 26, and a final payment "prior to any test flight." Evergreen, "[u]pon receipt of the [first] payment from AFX," was to "recommence work on the Aircraft and make best efforts to complete the maintenance work requested of Evergreen by March 1, 2001." The settlement agreement gave Evergreen "the right to immediately cease working on the aircraft" should AFX fail to make a required payment.

¶ 5 AFX president Philip Bowles stated in his declaration that, after the parties entered the settlement agreement, Evergreen "failed to assign a sufficient number of mechanics and inspectors to work on the Aircraft" and "perform[ed] only two hours of work on the aircraft on February 28" and none at all "from March 1 through March 4." AFX had timely made the first payment due under the settlement agreement but failed to make the payment due February 26 until the end of the day Friday, March 2.

¶ 6 Bowles stated Evergreen completed the repairs on March 15, and Evergreen "issued a Maintenance Release stating that all of the work that Evergreen had done on the Aircraft was `carried out in accordance with [FAA and CAA regulations]'" and that the Aircraft was "ready for Release to Service." (Emphasis removed.) Bowles further asserted that, "[a]fter AFX had received the Aircraft from Evergreen," AFX discovered that many of the required repairs had been made improperly and several had been omitted altogether. The asserted problems included incorrectly calibrated fuel gauges, an improperly repaired "rear pressure bulkhead," improper service of a navigational system, and faulty repair of mechanisms involving the wing flaps.

¶ 7 In August 2001, AFX filed an action against Evergreen alleging, inter alia, breach of both the maintenance and settlement agreements, fraud, and "unlawful conduct." Evergreen counterclaimed for fraud, unjust enrichment, and breach of contract. Ultimately, upon Evergreen's motion to dismiss, the trial court dismissed AFX's claims without prejudice and Evergreen prevailed on its breach of contract counterclaim after a bench trial.

¶ 8 AFX filed the instant action within a week of the trial court's ruling in favor of Evergreen on its breach of contract counterclaim in the first action. AFX alleged, as amended, breach of both agreements, fraud, violation of Arizona's Consumer Fraud Act, A.R.S. §§ 44-1521 through 44-1534, unlawful activity pursuant to A.R.S. § 13-2314.04, and conversion, and also sought rescission of the settlement agreement on the basis of fraud, bad faith, duress, and a lack of consideration. Evergreen filed a third-party complaint against Bowles alleging fraud. Evergreen also filed a motion to dismiss the complaint arguing the doctrine of claim preclusion barred AFX's claims and the statute of limitations barred AFX's claims of conversion, violation of the Consumer Fraud Act, and unlawful activity. The trial court granted the motion to dismiss as to all but AFX's claim for breach of the settlement agreement, stating AFX would "be precluded from contesting the amount of charges or actions of [Evergreen] prior to the signing of the settlement agreement."

¶ 9 Evergreen then filed a motion for summary judgment asserting the maintenance agreement and the release clause in the settlement agreement barred AFX's claim for lost profits caused by Evergreen's alleged delay in completing the aircraft repairs. The trial court granted the motion "on the issue of timely completion of repair of the aircraft," but denied it "as to the adequacy of repair." The court also clarified its ruling on Evergreen's motion to dismiss, stating, "based on [Evergreen's] judgment for its contract claim in the prior case, [AFX's] Breach of Contract Claim shall be limited to events subsequent to the settlement agreement. Should Evergreen pursue its [third-party complaint against Bowles] for fraud, evidence of prior workmanship shall be admissible."¹

¶ 10 The parties then entered a stipulation and filed a proposed judgment. The stipulation described the parties' interpretation of the trial court's rulings² and requested the court enter the proposed judgment because "the parties believe it is in their best interests to avoid a trial on the remaining claim." The court signed the proposed judgment in favor of AFX for $15,000 "to act only as a set-off from the prior Judgment[] entered in [the first action] in favor of Evergreen." The stipulated judgment also stated it "shall not limit either party from making any argument on any issue in the Court of Appeals" and, "[i]f the Court of Appeals remands this case for any further proceeding before the Trial Court," then the judgment would be vacated and have no preclusive effect. This appeal followed.

Discussion

Motion to Dismiss the Complaint

¶ 11 AFX first contends the trial court erred in granting Evergreen's motion to dismiss the complaint. We review a trial court's grant of a motion to dismiss for an abuse of discretion, but review issues of law de novo. Dressler v. Morrison, 212 Ariz. 279, ¶ 11, 130 P.3d 978, 980 (2006). "We will `uphold dismissal only if the plaintiff[] would not be entitled to relief under any facts susceptible of proof in the statement of the claim.'" Id., quoting Mohave Disposal, Inc. v. City of Kingman, 186 Ariz. 343, 346, 922 P.2d 308, 311 (1996) (modification in Dressler). Evergreen argued in its motion to dismiss that the judgment in Evergreen's favor in the first action barred all AFX's claims under the doctrine of res judicata, also known as claim preclusion.³ The trial court granted the motion as to all but AFX's claim for breach of the settlement agreement but did not explain the reason for its ruling, a practice we discourage. See Hawkins v. Allstate Ins. Co., 152 Ariz. 490, 495 n. 3, 733 P.2d 1073, 1078 n. 3 (1987) ("We urge trial judges to articulate their reasoning so appellate courts can determine on appeal whether the ruling was erroneous.").

¶ 12 AFX first contends the doctrine of claim preclusion does not apply "because all of [its] claims in the first lawsuit were dismissed without prejudice before the counterclaim trial." "Under the doctrine of claim preclusion, a final judgment on the merits in a prior suit involving the same parties or their privies bars a second suit based on the same claim." Dressler, 212 Ariz. 279, ¶ 15, 130 P.3d at 981.

¶ 13 In the first action, the trial court granted Evergreen's motion to dismiss and dismissed AFX's complaint "without prejudice." Under Rule 41(b), Ariz. R. Civ. P., 16 A.R.S., Pt. 1, an involuntary dismissal "operates as an adjudication on the merits" unless "the court in its order ... otherwise specifies." A dismissal without prejudice, however, is not an adjudication on the merits and does not bar a second action under the doctrine of claim preclusion.⁴ See Union Interchange, Inc. v. Van Aalsburg, 102 Ariz. 461, 464, 432 P.2d 589, 592 (1967) ("A dismissal without prejudice does not go to the merits of the plaintiff's cause and does not bar plaintiff from later filing on the same cause of action."); cf. Phillips v. Ariz. Bd. of Regents, 123 Ariz. 596, 598, 601 P.2d 596, 598 (1979) (order not specifying whether involuntary dismissal was with prejudice is adjudication on the merits).

¶ 14 Evergreen argues, although the trial court in the first action dismissed AFX's claims without prejudice, claim preclusion applies because AFX, in the first action, "re-asserted the same claims [the court had dismissed...